UNMC firm says patent letters work to intimidate

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Posted: Wednesday, April 9, 2014 12:00 am

Nebraska occupied a central role in patent-litigation reform talks Tuesday in Washington.

Hearings on the topic were conducted by a House subcommittee chaired by U.S. Rep. Lee Terry, R-Neb. Witnesses offering testimony included Michael Dixon, chief executive of the University of Nebraska Medical Center's technology transfer unit.

The issue at hand was patent demand letters, the notices sent to people and companies alleging infringement, usually involving obscure technologies embedded in innocuous devices such as printers or in functions carried out by computers.

Tuesday's hearing came as a variety of legislation is being pondered by Congress, including shifting fees of the defendant to the party asserting the patent rights if the defendant wins in court; requiring patent asserters to post a bond covering estimated defense costs; and requiring patent-demand letters to spell out in plain English what is being disputed.

Such letters typically demand payment of a fee to license the technology, betting that people would rather pay less to settle than pay more to defend in court. UNeMed, the company that administers patents stemming from the medical center's medical and biological research, is the occasional recipient of letters alleging infringement on someone else's patent, with the consequent demand for payment under threat of lawsuit.

“Universities and our licensees are negatively impacted by vague, overly aggressive demand letters,” Dixon, CEO of UNeMed, told the commerce, manufacturing and trade subcommittee. “These demand letters seek financial gain through intimidation rather than legitimate patent enforcement.

“They are like rocks thrown in a stream, which consume time and money, diverting and slowing the pace of innovations to the marketplace.”

Terry said in the hearing's opening remarks that not all patent enforcement efforts are wrong, and that not all patent-assertion companies require regulation. Inventors must be allowed to control the commercialization of their works, he said, and small ones often need a patent-protection company to assist them.

“What we address today are instances where bad actors extort money from innocent parties under the pretense of asserting intellectual property rights,” Terry said. “This kind of activity belongs in the same family as other types of unfair and deceptive trade practices — our job is to separate it from legitimate rights assertion.”

Dixon said no-nonsense patent-demand letters would be a start and should be required to include detailed information, such as the patent being infringed; the product or activity associated with the infringement; and the owner of the patent.

Many patent assertion companies — organizations that sometimes own thousands of patents of a technological nature embedded in everyday products — will oppose such measures, Dixon said.

The hearing included testimony from a Connecticut banker who said 30 financial institutions in his state have received vague patent-demand letters related to computer functions in ATMs, asking for $10,000 from each.

Also testifying was Dennis Skarvan, deputy general counsel for Illinois-based heavy equipment maker Caterpillar. He said patent-letter reform should not deter legitimate attempts to enforce intellectual property rights, as his company owns thousands of patents and spends $8 million a day on research and development.

“Any patent holder engaged in good faith communication is entitled to safe harbor rights,” Skarvan said. “An abuser acting in bad faith is not entitled to safe harbor rights.”

Patent-demand letters have proliferated in recent years, and Dixon said it threatens startups. A few months ago, he said, a UNeMed partner company received FDA clearance for a patented device.

“Almost immediately after receiving FDA clearance, they received a demand letter asserting patent infringement against the company's product,” Dixon told the panel. The letter made legal claims without providing sufficient information to evaluate the accuracy of the infringement charge, he said.

“For a small company with a limited budget having just completed the arduous and expensive FDA process, the prospect of additional time and money to hire attorneys to trace the source of a demand letter and to determine its legitimacy does not make good business sense.”

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